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A Radical Solution For Saving America's Hospitals

This article concludes Dr. Robert Pearl's four-part series “Saving America’s Hospitals,” which examined the lagging performance and economic failings of inpatient facilities. In this final installment, he offers a solution.

Hospitals serve as the economic lifeblood of their communities. They are the second-largest source of private-sector jobs in the United States, employing 5.4 million Americans who, together, embrace a virtuous mission to heal and help others in need.

And yet, every year, more and more of them are forced to shut their doors. With soaring costs, eroding margins and mounting pressure from competing providers, the American hospital industry is on life support.

Like many in our industry, I’ve searched high and low for a painless solution. But having served as a healthcare CEO for 18 years, overseeing the care of over 5 million Kaiser Permanente members in nearly 30 hospitals on both coasts, I've concluded that a painless solution does not exist.

What we need is an effective solution. Though it will be difficult to implement and fiercely resisted by the hospital industry, these four steps combine to provide the best solution for improving the health of all patients:

Step 1: Close at least 25% of all U.S. hospitals

Most Americans believe that having a hospital within 10 minutes of their home is the best defense against a life-threatening medical emergency. Only on occasion is this true. More often, local hospitals maintain small patient volumes and, therefore, fail to meet the highest standards of clinical quality.

Smaller facilities, for example, rarely have the most skilled physicians available onsite to provide immediate treatment. Instead, they often must “call in” physicians to deliver expert care. And yet without skilled physicians onsite – without intensivists in critical care units, obstetricians in labor and delivery suites, or anesthesiologists in the operating rooms – patients not only suffer delays in their care, they suffer poorer outcomes as well.

In the Silicon Valley community where I live, three hospitals offer virtually the same services. And because of their close proximity, each lacks the patient volume to achieve clinical excellence. Combining all three hospitals into one facility would lower unit costs considerably while increasing the quality of care, which brings us to step two of this radical solution.

Every industry outside of healthcare understands the implications of volume: When it’s low, unit costs go up and quality suffers. When it’s high, unit costs go down and quality improves.

A hospital with a high volume of surgical cases can afford to assign nurses to single specialties, where they focus on a limited number of procedures. In doing so, they outperform smaller operating-room teams that must do a little bit of everything and lack the depth of expertise needed to treat patients effectively. The same axiom applies to most rural areas, as well, where hospitals maintain an average census of fewer than 30 patients, with no more than five patients in the ICU on any given day. There’s simply not enough volume in these locations to maximize medical care quality.

Many in the industry have pointed to the need for consolidation. And as I highlighted in part one of this series, hospitals are merging and closing, but not for the right reasons. Hospital leaders are not moving toward consolidation to improve performance or bolster efficiencies, but rather to build negotiating clout with insurers and raise prices.

Consolidating facilities can improve hospital care and lower costs. But it requires the remaining facilities to embrace a different strategy than they do today. They must use the increased volume to add clinical expertise, implement better approaches to patient care and right-size physician staffing.

Trauma centers have become the case study for consolidation. Though there is typically only one trauma center serving an entire county – and they’re usually located farther away from patients than the nearest community hospital – studies show that these facilities have lower mortality rates and offer residents a much better chance of recovery when compared to the local hospital’s emergency department (ED).

It’s understandable that community leaders, elected officials and residents would fear the consequences of closing their community hospital. But the reality is that these facilities are already losing patient volume to newer and less expensive care-delivery systems.

But if and when small-volume hospitals do close, they can still serve an important role.

Step 3: Convert closed hospitals to urgent care sites or “hubs”

In Northern California, Kaiser Permanente claims almost 50% of the commercial market share and provides inpatient treatment to more than 4 million members across 20 hospitals. Each of these high-volume facilities are approximately 15 miles apart.

In the Mid-Atlantic region, however, Kaiser Permanente’s footprint is much smaller, with a significantly lower membership and market penetration. Under these conditions, building large hospitals wouldn’t make sense.

Instead, KP built “hubs” in Maryland, Virginia and the District of Columbia. Set up within existing outpatient facilities (where construction costs were dramatically lower), these hubs are designed to provide high-volume, sophisticated care to patients who otherwise would be forced to go to the local ED, and would often be admitted to the hospital for an overnight stay.

KP's five specialty hubs in this region include Clinical Decision Units (CDUs), staffed 24/7 by ED-trained physicians and nurses with proximity to specialists in every field. Together, they provide immediate medical care to patients with almost every condition imaginable and with outcomes that equal or exceed most local EDs.

Furthermore, these hubs share a common electronic health record with neighboring partner hospitals while stationing highly experienced specialists (including cardiologists) at each inpatient site. Therefore, patients needing immediate and sophisticated procedures (like interventional cardiology) can be transferred directly from the CDUs to the partner-hospital suites, usually faster than if their treatment had begun inside the local ED. And thanks to the common EHR shared between hubs and partner hospitals, a patient’s medical information “travels” from site to site, thus reducing the likelihood of medical error.

Seventy percent of the time, these hubs deliver care quicker, with higher quality and lower costs, than in a hospital ED or inpatient facility.

This same model could service rural areas with smaller hospitals, as well. The solution: Convert the inpatient facility to a hub and transport patients needing hospital stays to places with larger volume and greater expertise. The military has proven that this approach saves far more lives than the “Mash Units” of the past.

At the other end of the volume spectrum, KP’s “Centers of Excellence” in Northern California serve as an example of how specialization enables excellent results. In these centers, specialists with advanced fellowship training have adequate patient volume to focus on a smaller set of highly complex interventions, such as laparoscopic gastrectomy, esophageal surgery and hepatobiliary cancer operations. And because these specialists acquire significant expertise and experience, they consistently offer minimally invasive approaches that yield fewer complications, a faster recovery and better outcomes.

Combining these two models – high-intensity hubs with centers of excellence – would result in fewer deaths and lower healthcare costs in communities throughout the nation.

The final piece of the puzzle will be enforcement.

Step 4: Establish thresholds for minimal volumes

Many Americans wrongly assume their local hospital offers excellent care. That's rarely true. The Leapfrog Hospital Safety Guide, an independent research publication, reveals that most community hospitals fail to deliver clinical excellence because of their low patient volumes.

To put this problem in context, consider that half of the doctors who perform hysterectomies do fewer than a dozen of these procedures a year. Now, if you asked your local surgeon if she would allow a colleague who does fewer than 12 a year to perform her hysterectomy, the answer would be “no.” And if she wouldn’t allow it, why would you?

I propose that we put a highly credible, independent organization such as the Leapfrog Group in charge of establishing minimal volumes throughout the industry.

That is, we should ask the group to determine the minimum number of surgeries or procedures required to achieve clinical excellence, both for individual physicians and their hospitals. Of course, some exceptions would need to be made (as in cases where newly trained physicians are starting their careers). But, overall, this approach would dramatically limit how many doctors and hospitals could perform complex procedures, thus raising clinical quality and lowering complication rates.

To enforce these minimum thresholds, I would recommend that the Centers for Centers for Medicare & Medicaid Services (CMS) withhold payment from any hospital or doctor who performs one of these operations without the requisite experience outlined in the requirements. Our industry talks a lot about “paying for value.” This would be a positive and effective step toward that goal.

Bracing For Resistance, Implementing Change

I recognize that this four-part solution would radically disrupt the hospital industry. But if a painless alternative existed – or if incremental steps were enough to reverse the industry’s troubling trends – such a strategy would have been implemented decades ago.

Instead, some 17 years after the publication of “Crossing the Quality Chasm,” a groundbreaking report on the widespread problems of high costs and poor quality in many U.S. hospitals, the problems have only gotten worse.

Medical errors are now the third-leading cause of death in the United States, killing more than 250,000 Americas each year, according to a recent Johns Hopkins study. Meanwhile, hospitals now account for 30% of the nation’s $3.3 trillion in healthcare expenditures. Though the growth rate has slowed in recent years (due to rise of free-standing outpatient sites), hospitals remain the runaway leader in spending, outpacing other high-cost entities: physician services, pharmaceuticals and health plan (insurance) administration.

The Institute of Medicine (IOM) estimates that 44.5% of all financial waste in U.S. healthcare comes from inefficient care delivery and unnecessary services. Translating that percentage to real dollars: U.S. hospitals leave $441 billion in potential cost savings on the table each year. And because of this overspending, healthcare has become increasingly unaffordable for patients, businesses and the government.

If nothing is done to improve hospital performance, our nation will have little choice but to ration medical care. And once that begins, the American healthcare system will enter into a vicious cycle of reduced access and rising costs – leading to delays in treatment, higher rates of chronic disease and greater health disparities between rich and poor Americans. This increasing disease burden will push costs even higher, leading to further rationing and poorer access.

The only solution is to eliminate waste from the system and increase operational excellence. The first step will be closing and consolidating hospitals to increase volume, maximize clinical expertise and improve operational performance. Step two, converting the closed hospitals to sophisticated hubs will help communities maintain access for urgent problems. Finally, asking Leapfrog to establish volume standards and calling on Medicare to enforce them will put pressure on smaller hospitals to merge and close, thus accelerating the change process.

Expecting hospitals to drive greater efficiency or voluntarily downsize their operations is an exercise in wishful thinking. Disruptive change is never easy, and it’s always met with resistance. But the consequences of not changing – or changing too slowly or changing just a little – will prove catastrophic to the hospital industry and our nation as a whole.

I’m passionate about transforming the American healthcare system and helping people understand the consequences of their medical decisions. I previously served as CEO of

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I’m passionate about transforming the American healthcare system and helping people understand the consequences of their medical decisions. I previously served as CEO of The Permanente Medical Group, the largest medical group in the nation, and as president of the Mid-Atlantic Permanente Medical Group. In these roles, I was responsible for 10,000 physicians, 38,000 staff and the medical care of 5 million Americans on both the west and east coasts. I authored the Washington Post bestseller, "Mistreated: Why We Think We're Getting Good Healthcare--And Why We're Usually Wrong," and am a board-certified plastic and reconstructive surgeon, a clinical professor of surgery at Stanford University, and on the faculty of the Stanford Graduate School of Business. The views I express here are my own and do not necessarily represent those of Kaiser Permanente. Follow me on Twitter @RobertPearlMD.